PBOC regulating Yuan outflows
(22 January 2016 – China) The People’s Bank of China (PBOC) has been rumoured to be placing limits on the outflow of yuan funds that corporations can send out of the country.
By doing so, it will tighten supply of the currency, hence influence the exchange rate in offshore markets.
PBOC told banks providing yuan cash-pooling services for multinational corporations to limit outflows so the firms do not send more funds overseas than they bring in, people with knowledge of the matter said.
The regulator instructed the banks to do so through "window guidance" – a regulatory practice in which the central bank tells financial institutions what to do and expects them to follow the order, even though the requirements are not mandatory, the sources said.
According to sources, companies whose yuan cash pool showed a net outflow have been restricted from sending money overseas since January 19. In addition, those whose net outflow continued to increase would be subject to a punitive reserve requirement on their deposits with the bank.
The yuan cash-pooling service, which commenced in 2014, allows corporations to move money across borders among their invested companies and affiliates with relative ease compared with other businesses, which still have to follow strict rules.
China is concerned companies would use the service to move more yuan overseas than their operations needed, sources said.
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